No, don't reduce the interest reported on your 1099-B. Rather, enter it as is and then make a negative corresponding entry that represents the interest you paid the other bond holder. To enter a corresponding negative amount, in TurboTax online, from the Wages & Income section scroll down to Less Common Income, then select Miscellaneous Income and then select Other Reportable Income. Enter a description for the adjustment (Adj for exempt interest) and then enter the adjustment as a negative figure.
If you are using TurboTax CD/download, the steps are essentially the same. Select the Personal tab, then Personal Income, and scroll down the screen to Less Common Income. Then continue as mentioned above.
No, don't reduce the interest reported on your 1099-B. Rather, enter it as is and then make a negative corresponding entry that represents the interest you paid the other bond holder. To enter a corresponding negative amount, in TurboTax online, from the Wages & Income section scroll down to Less Common Income, then select Miscellaneous Income and then select Other Reportable Income. Enter a description for the adjustment (Adj for exempt interest) and then enter the adjustment as a negative figure.
If you are using TurboTax CD/download, the steps are essentially the same. Select the Personal tab, then Personal Income, and scroll down the screen to Less Common Income. Then continue as mentioned above.